RBNZ Interest Rate Decision

12 February, 2019

We could see some volatility in NZD pairs later in the Asian session around what is probably the most important and market-moving event of the month: the RBNZ’s monetary policy decision and subsequent statement.

Here’s a look at what’s going on in the markets and what we might expect for the event.

Schedule and Consensus


The interest rate decision is expected at 02:00 on Wednesday CET (or 20:00 on Tuesday EST), but the broadest consensus is that the bank will keep rates steady at 1.75%.

Where we’re likely to see change is an hour later when Governor Orr holds a scheduled press conference. The Governor is expected to give a more dovish outlook for the currency, something in line with what we saw from Australia last week.

There are even some analysts who are speculating that the RBNZ might try to outdo the RBA in a swing towards a softer stance.

What’s Been Going On


In order to understand how the market will react to this, it’s best to get a handle on why analysts and investors are expecting the change in stance.

Firstly, the more straightforward explanation is that New Zealand and Australia have a strong economic connection, and their currencies often move in tandem. In addition, economic issues in Australia are typically mirrored in New Zealand.

The RBA has recently softened their tone because of underperforming data releases due to the housing slump, trade issues, and the lack of growth in China.

Although New Zealand  seems to have avoided the housing price slump for now, they are still open to be indirectly affected by ongoing trade concerns. Not to mention, domestic economic data has been disappointing of late, as we’ve previously discussed .

The Case for Dovishness


The latest GDP data hasn’t been released yet, but from performance through other indicators, it doesn’t bode too well.

Inflation is still just below the target rate, registering 1.9% in the last couple of months. Tourist arrivals are up, but so is unemployment. This is showing a bit of a disconnect, because even though businesses are anecdotally reporting that it’s hard to find workers, wages aren’t going up. They only increased 0.5% at an annual inflation-adjusted rate.

Last week we saw a drop in the NZDUSD which coincided with the release of employment data. Some analysts are attributing this drop in pricing to an expectation of a dovish tone from the RBNZ, and a direct response to domestic data. However, this was also after the RBA’s policy decision and the more dovish tone it adopted during its press conference.

The Market


If we work under the theory that the market has been pricing in a dovish tone, this would imply that should the RBNZ stay pat on the interest rate and mirror the RBA in outlook, there could be something of a “relief” rally to the NZDUSD.

This is what some analysts are projecting. With such a broad consensus that the bank will have a more depressed outlook, the bears could have pushed out the bulls over the last couple of days. However, when the data comes out, the only traders left will be the more optimistic ones.

Another reading is that the NZD is moving in line with the AUD due to a combination of data and export outlook that is pushing both currencies back into the downward trajectory they’ve had since November. The trajectory was interrupted by the sudden rise in iron ore prices two weeks ago.

This would imply that a dovish tone is not as priced in as analysts think, and we could see the NZDUSD take another leg down in response to a more dovish tone.

Of course, there is still the much less likely scenario that the bank doesn’t change its stance at all. Afterall, NZ data, while less than stellar, is still performing better than its largest neighbor.

Orr might judge that the currency can wait a month to the next meeting. This would likely send the NZDUSD rocketing upwards.

The even less likely scenario is that the outlook is so depressing that the bank comes out and cuts the rate to 1.50%, which virtually no one is expecting, and that would lead the currency to collapse.


Source link  
What To Expect From RBA Rate Decision

The Aussie is set to be among the most volatile currencies this week, starting off with the interest rate decision from the RBA. A large number of...

Traders gear uUp for payrolls report

A busy day for traders today will see some high ticket events. The official payrolls report for April will be coming out. Economists forecast...

Will The US Trade Deficit Rise

The latest monthly trade balance figures from the United States will be coming out later today. According to the median estimates, economists...


Inflation data to dominate week ahead

The economic docket for the week ahead will see a somewhat slower schedule with most of the major markets closed on Friday due to Good Friday....

USD Pares Gains Despite Rising Import

The US dollar closed last week on a bearish note. Economic data on the day saw the release of the monthly import price data. Monthly import prices...

FOMC, SNB And BoE Meetings

The week ahead will see the US Federal Reserve and the Bank of England holding their respective monetary policy meetings. Both are expected...


Dollar Likely To Lead Weekend Flows

Following a 3-day streak, eurodollar finally saw a rejection at $1.1340. German inflation CPI data added a negative sentiment to the pair, which...

BOC turns dovish after disappointing

The Bank of Canada held its monetary policy meeting last week on Wednesday. As widely expected, the central bank left the key interest rates...

BoJ Meeting And UK GDP

Economic data for the week ahead will remain somewhat quiet with only the Bank of Japan due to hold its monetary policy meeting on Friday...

  


Share it on:   or